The Ultimate Ownership Structure, Institutional Environment And The Cost Of Equity Capital

The cost of equity capital has been the focus of attention of the finance issues. Research the cost of equity capital from the perspective of ultimate ownership structure and institution is currently leading subject of financial research. On the basis of exploring the cost of equity capital measurement models that are suitable for Chinese listed companies, combined with realistic background of significant regional differences in the institutional environment of our country, focusing on principal-agent problem of ultimate controlling shareholder and external investors, this paper deduced theoretically the relationship between ultimate ownership structure, institutional environment and the cost of equity capital. Specifically, this paper deduced theoretically the influence of ultimate ownership structure on the cost of equity capital, the influence of institutional environment on the cost of equity capital, and the reciprocal influence of institutional environment and ownership-control rights divergence on the cost of equity capital. Based on theoretical deduction, taking 2004-2013 Shanghai and Shenzhen A-share listed companies as research samples, using a variety of quantitative methods including univariate T test, rank sum test and multiple regression, this paper makes empirical tests and robustness tests of research hypothesis of this paper. The study finds that ultimate ownership structure is an important factor affecting the company’s cost of equity capital, the improvement of institutional environment quality can reduce the company’s cost of equity capital, the improvement of institutional environment quality can weaken the positive correlation between ownership-control rights divergence and the company’s cost of equity capital. In particular, the conclusions of this study are summarized as follows:Firstly, in respect of the adaptability evaluation about measurement model of the cost of equity capital, combining characteristics of Chinese listed companies data, this paper analyzes theoretically the applicability of multiple measurement models of the cost of equity capital in china, and using correlation analysis and multiple regression analysis, this paper test empirically whether the relationship between the cost of equity capital and realized returns is significant, and whether the relationship between the cost of equity capital and risk factors is significant. Test result finds that, the measurement models of the cost of equity capital that are suitable for Chinese listed companies are the MPEG model (COEMPEG), PEG model (COE_PEG) and OJ model (COE_OJ), but there is no absolute ranking between the three.Secondly, in respect of the influence of ultimate ownership structure on the cost of equity capital, the study finds that:(1) ultimate ownership is negatively correlated with the cost of equity capital, and compared to state-owned holding company, the negative correlation in non-state-owned holding company is more significant; (2) ultimate controlling shareholders’ ownership-control rights divergence is positively correlated with the cost of equity capital, and compared to state-owned holding company, the positive correlation in non-state-owned holding company is more significant; (3) compared to private enterprises and local enterprises, central enterprises have significantly lower cost of equity capital; (4) there is no systematic difference in the cost of equity capital between local enterprises and private enterprises; (5) there is also no systematic difference in the cost of equity capital between institute background restructuring enterprise and private enterprises; (6) compared to private enterprises, foreign-funded enterprises have significantly lower cost of equity capital; (7) In the five categories of enterprises, central enterprises and foreign-funded enterprises have significantly lower cost of equity capital, and local enterprises, institute background restructuring enterprise and private enterprises have significantly higher cost of equity capital.thirdly, in respect of the influence of institutional environment on the cost of equity capital, the study finds that:(1) the influence factors of the cost of equity capital is not only legal protection, but also government administrative management, financial development, product market development, media coverage and social honesty; (2) the improvement of institutional environment quality can reduce the company’s cost of equity capital, the improvement of institutional environment quality refers to a higher level of development of government administrative management, financial development, product market development, media coverage and social honesty and so on.Finally, in respect of the reciprocal influence of institutional environment and ownership-control rights divergence on the cost of equity capital, this paper studies suggest that:the improvement of institutional environment quality can weaken the positive correlation between ultimate controlling shareholders’ownership-control rights divergence and the cost of equity capital, that is, after raising the level of development of government administrative manage-ment, financial development, product market development, media coverage and social honesty and so on, plunder risk and plunder costs of ultimate controlling shareholder will increase, thereby inhibit the predatory behavior of ultimate controlling shareholders, and then weaken the positive correlation between ownership-control rights divergence and the cost of equity capital.